With most of the political wrangling and debate nearly over, one hopes, we are left to deal with the residue of their cacophony. Politically, I’m not astute enough to try and unravel the truths and un-truths spoken during the government budget debate and shutdown. But as an economic scientist, the numbers reveal an extraordinary landscape of congruent trendlines, missed opportunities, and plausible strategies for safely navigating the next 3 months. And, unfortunately, 3 months is now becoming the new “long-term” strategy, as exogenous news events and personal political brinksmanship supplant the “five year”, “ten year”, or “generational” investment strategy of year’s past.
We are likely to see a
continued migration from bonds to stocks, as the political rhetoric “freezes”
business activity, therefore limiting any upwards migration in interest
rates. Thus, as a traditional investment
alternative to equities, bonds are losing their appeal. By
traditional comparisons, then, equities still look relatively inexpensive
despite new highs in the averages.
Allocations into stocks in my
portfolios should rise modestly through the end of the year as some bonds
mature, cash sits on the sideline, or profits are taken in today’s key winners.
There is little doubt that
economic activity will increase over time if the government can get its act
together and if a lifeline can be thrown to an overburdened consumer. While there is no guarantee the politicians
can get it right, most of them hope to avoid the precipice a second time. A potential rise in costs for consumers might
either be onerous for a stagnant wage base or quite bullish for
services-related equities. Similarly,
tangible assets, such as basic materials, will flourish in an economy heavily
oriented around infrastructure development and agricultural plentitude.
Most importantly, I see a renewed sense of
purpose-based, or socially responsible, investing. This nostalgia
is a shared phenomenon amongst those of us who remember government as a functioning
body of statesmen who represented our long-term aspirations, and by the
youngsters today who think the whole thing is quite simply a “mess”. Such
thinking is not political, per se, but borne out of an opportunistic mindset
that actually sees profits in doing the right thing. If there are competitive returns to be
found in that sector, they are in community banking; food, water, and
agricultural stocks; alternative energy; “new” industrials; and
technology. I might add parenthetically
that as a big fan of the space program in the 1960’s, I hope to see a
rejuvenation either in private or public aerospace development and all the
ancillary benefits such research provides.
It might make sense, also, to renew our focus upon
global and emerging market equities. While it is safe to be ethno-centric about
the United States
Finally, there is “no one size
fits all” approach to solving these complex economic, political, and investment
issues. Many of our clients have access
to index funds or “sector specific opportunity” investments, but succeeding at generating portfolio returns
requires a science, a discipline at transacting that science, and a
customizable approach to balancing risk/reward, time horizons and individual
perspectives. “Canned content” has
never beaten my performance, and never will.
While there are a number of credible content providers out there, it’s
usually at a cost, or premium for time, and identical to each of their competitors.
Building loyalty takes time,
empathy, and commitment to getting it right.
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